In December, the government posted a fiscal surplus of 82 billion rupees ($1.5 billion) as revenue exceeded spending.

The Indian government’s efforts to control its swollen fiscal deficit finally seem to be paying off, though not everyone is convinced.

Some economists think a recent clampdown on government spending suggests Finance Minister P. Chidambaram may not only keep the fiscal deficit within the revised 5.3% target, but actually spring a surprise by reducing it to the original budget target of 5.1%.

The target was raised to 5.3% in late October, reflecting the impact of heavy government spending on subsidies and a slowdown in revenue growth as the economy stuttered.

The country’s weak fiscal health has prompted global rating agencies Fitch and Standard & Poor’s to warn India could lose its investment grade status if corrective measures aren’t taken promptly. The agencies last year downgraded India’s sovereign rating outlook to “negative” from “stable.” Fitch reiterated that outlook last month, saying the worsening fiscal situation has become a bigger threat than inflation and an economic slowdown.

In a renewed effort to revive growth, the Indian government has since September taken measures to allow greater foreign direct investment in sectors such as retail and civil aviation, as well as increased state-set prices of diesel to reduce subsidies that strain its finances. Last month, India also liberalized the price setting mechanism for diesel, allowing state-run retailers to make small but periodic increases.

However, many reform steps such as easing foreign investment restrictions in the pension and insurance sectors still need to be approved by Parliament, where the government could face stiff opposition.

Mr. Chidambaram has also asked government departments to cut unnecessary spending, including on travel and conferences. Some of the planned spending on long-term development programs is also being deferred to next fiscal year. There hasn’t been any official statement on by how much the government plans to cut spending.

Economists question the quality of such fiscal adjustment. Reducing long-term development expenses might help check the deficit, but it would come at the cost of delaying implementation of social and economic development programs.

In December, the government posted a fiscal surplus of 82 billion rupees ($1.5 billion) as revenue exceeded spending, marking a sharp turnaround from a fiscal deficit of 450 billion rupees in November.

A fiscal surplus is fairly uncommon in developing economies under pressure to spend more to grow rapidly and improve living conditions of their people.

Sonal Varma, an economist at Nomura, said the government’s effort to cut spending was “laudable.”

“If the government slashes plan expenditure by 28% in the fiscal year to March 2013, as reported in the media, and postpones subsidy payments, then the revised fiscal deficit target will be in the realms of possibility with a chance of even undershooting it,” she added.

Nomura added that the rate of increase in government spending between September and December came down to less than one percent from 20% in April-August.

Not all economists are convinced that the government has done enough to control the deficit.

Morgan Stanley still forecasts the fiscal deficit to be at 5.7% of gross domestic product this fiscal year, well over the government’s target and same as in last fiscal year.

“If the government becomes more aggressive in reducing expenditure growth in the remaining part of the fiscal year, it is possible that the fiscal deficit will move lower by 0.1-0.2% of GDP from our current estimate,” analysts Upasana Chachra and Chetan Ahya said in a research note.

Worries also remain that the government may buckle under political pressure and go slow on increasing fuel prices as such a move could stoke inflation and hurt its electoral prospects in several state polls due this year. Federal elections are also scheduled for 2014.

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